4ECC legacy and the need for continued scrutiny
128.Our current work addresses only a portion of our scrutiny priorities over Parliament 2015–20. This chapter sets out a brief overview of our work from the last year and our thinking on other key issues going forward. It provides recommendations to the Business, Energy and Industrial Strategy Committee, the House, and the wider policy community on key issues on which to hold Government to account.
Highlights from 2015–16
A clear strategy for carbon capture and storage
129.Our first substantive report of the 2015–16 Parliamentary Session, Future of carbon capture and storage in the UK, looked at the Government’s sudden decision to cancel its £1 billion CCS commercialisation competition.331 We concluded that “pulling the plug on the competition without warning was damaging both to the relationship between Government and the industry, and to investment into the UK” and that:
With gas and without CCS, [the UK] will not remain on the least cost path to [its] statutory decarbonisation target. If Government is committed to its climate change targets, it cannot afford to sit back and simply wait and see if CCS will be deployed at the moment when it is needed.332
We therefore urged Government to devise promptly a new strategy for CCS.333
130.In its response the Government promised to look carefully at all options and provide further details on the next steps for CCS once it had engaged further with industry, reflected on our recommendations, and those from Lord Oxburgh’s CCS Advisory Group.334
131.Lord Oxburgh’s CCS Advisory Group published its report in September 2016. It concluded that:
UK action on CCS now will deliver lowest cost to the consumer. There is no justification for delay. Heavy costs will be imposed on current and future UK consumers by a continued failure to enact an effective CCS policy.335
The Advisory Group set out six detailed recommendations, including the need to create a CCS Delivery Company which would “initially be government owned but could subsequently be privatised”, akin to companies set up to deliver the 2012 Olympics or Crossrail. We hope our successors will maintain the pressure on Government to set out more detailed plans for the next steps for carbon capture and storage in the UK.
Restoring investor confidence and developing a robust Emissions Reduction Plan
132.Our report, Investor confidence in the UK energy sector, published in March 2016, set out the factors that were combining to damage investor confidence and made detailed recommendations on urgent and longer-term actions the Government ought to take to address these.336 In the short-term for example we sought clarity on the Contracts-for-Difference (CfD)337 auctions that are due to take place this decade. We would like to see details on which technologies can participate in upcoming CfD rounds, and in particular that the UK Government will seek official clearance of remote island CfDs by the European Commission in time to participate in these auctions.338 Our report also sought clarity on how the Levy Control Framework (LCF)339 is managed pre-2020. The LCF lacks transparency, as well as post-2020 clarity, which concerns us given its centrality to energy policy. In the longer-term, we explained that “the ‘Carbon Plan’ [now referred to by Government as the ‘Emissions Reduction Plan’] for achieving the fifth carbon budget would represent an ideal opportunity for rebuilding confidence in the direction of travel for the energy sector”. We also touched on this issue in our report, Setting the fifth carbon budget.340 We set out in our investor confidence report detailed principles the Government needs to follow as it develops the Emissions Reduction Plan over the course of this year. The Plan was to be published by the end of 2016 but there are now worrying suggestions that this timeline may slip.
133.We did not receive a Government response to our investor confidence report within the usual two-month timeframe (as outlined in the Osmotherly rules).341 We waited over 16 weeks for this reply, but the document we received failed to respond to any of our specific recommendations, instead providing loose replies to themes from the summary and not engaging with any material beyond page four of the report. We declined to publish this document at the time, to avoid any indication that this discharged the Government’s obligation of response. We expressed our dissatisfaction in the strongest terms directly to the then Energy Minister and subsequently in a letter to the then DECC Secretary of State.342 We have also raised this issue in person with Greg Clark since he was appointed Secretary of State for BEIS. As we bring our activities to a conclusion we remain immensely disappointed that the Government has still not provided a proper response to such an important report. We append to this report a copy of the unsatisfactory response we received on 28 June from Government, which we are publishing now in the interest of transparency.
134.We urge our successors to press the Government on the timeline for developing its Emissions Reduction Plan to meet the fourth and fifth carbon budgets. Delaying the publication and implementation of a robust plan risks further uncertainty on the direction of UK energy and climate policy which could damage investor confidence and call into question the UK’s ability to meet its long-term decarbonisation targets. Our report, Investor confidence in the UK energy sector, set out a number of detailed recommendations and questions that remain ignored by Government. The Government’s engagement with this report has been wholly inadequate, and we urge our successors and other Members to continue to press for an adequate response.
Building momentum on energy efficiency
135.Energy efficiency can play a significant role in helping the UK tackle the energy trilemma, but our report, Home energy efficiency and demand reduction, exposed flaws in policy here.343 We expressed major concerns about the Government’s decision to use a supplier obligation—a revised version of the Energy Company Obligation (ECO)—to tackle fuel poverty. We called on Government to reinstate the Zero Carbon Homes policy. In the light of the failed Green Deal scheme, we set out detailed actions the Government should take to stimulate the ‘able-to-pay’ market. The Government did not agree with our recommendations on fuel poverty or Zero Carbon Homes.344 However, it recognised the need to learn lessons from the Green Deal and suggested it was considering a range of options, although no further details have been forthcoming. We hope our successors will build on our work and push for effective action from Government to help stimulate the take-up of energy efficiency measures.
Getting legislation right for a smarter, fairer, more competitive energy sector
136.On 21 January the Government published draft legislation on energy with the stated aim of increasing competition in the energy market and reducing energy costs for consumers.345 The draft legislation contained a package of measures on wide-ranging issues including the roll-out of smart meters, next-day switching, settlement arrangements for electricity, and competitive tendering for onshore transmission. We carried out detailed pre-legislative scrutiny of these measures and made a number of practical suggestions on how Government could amend the draft measures to make them clearer and to ensure that consumers benefit.346 While the Government has responded to our report—and agreed with many of our proposed changes—it has not yet introduced a Bill in Parliament to bring forward the draft measures. When it does so, we hope Members will use our work to refine the legislation further.
137.Upcoming legislative changes will not be limited to those that we scrutinised in draft form earlier this year. The Competition and Market Authority’s (CMA) Energy Market Investigation concluded in June and some of its recommendations on improving competition will require changes to the law. We carried out an evidence session with various stakeholders and the CMA soon after the investigation’s final report was published.347 While stakeholders accepted the broad thrust of the CMA’s report some elements of the package of remedies provoked concerns. We highlighted two such concerns in a letter to the Secretary of State for BEIS: privacy issues relating to the proposed database of customers that have not switched off a Standard Variable Tariff for three or more years; and rolling back recent changes which forced price comparison websites to show as default the ‘whole of the market’ deals rather than only those for which they are paid commission.348 We hope that our successors will maintain a watching brief on implementation of the CMA’s remedies.
138.Our wide-ranging report, Low carbon network infrastructure, also highlighted potential legislative changes needed to ensure the energy network is able to adapt to a low carbon future.349 For example, we urged the Government to make the changes necessary to enable Ofgem to regulate district heating networks. In its response the Government indicated that it was keen to accelerate the deployment of such networks and was “working with Ofgem, relevant trade bodies and wider industry to consider [our proposals], alongside a range of other approaches”.350 Our report further observed that current regulatory conditions for storage were hindering its development. We urged the Government to “publish its plans, as soon as possible, for exempting storage installations from balancing charges, and from all double-charging of network charges”.351 This is a subject we investigated further through our work on the energy revolution (see chapter two). Our report also called for major changes to the way in which the electricity system is operated. This included a more active role for Distribution Network Operators in manging the flows on local networks and the creation of an Independent System Operator, which would effectively break away National Grid’s system operation role from its role in owning and maintaining the transmission network. In its response Government told us it was “now considering the case for changes to the status quo”.352 It is essential that our successors continue to press the Government for timely action to ensure that energy networks are ready to maximise the benefits from a low-carbon future.
A renewed cross-Government effort to decarbonise heat and transport
139.Our most recent report, 2020 renewable heat and transport targets, warned the Government that on its current course, the UK would fail to achieve its legally binding targets due to a lack of effective cooperation between Government departments.353 In addition to providing practical suggestions to Government on how to tackle decarbonisation of heat and transport, we noted the recent ‘Machinery of Government’ changes could present broader opportunities in this policy area. We explained that bringing energy and climate change policy into a larger department with wider responsibilities for business and industrial strategy could enable more joined-up thinking on a low-carbon economy and place clean growth at the heart of a more influential department. However, we warned that the worst case scenario would be that energy and climate change issues get buried by conflicting concerns. The onus will now be on the BEIS Committee to ensure that the new Department for Business, Energy and Industrial Strategy maximises the opportunities to place the decarbonisation agenda at the heart of business, energy and industrial strategy.
Scrutiny priorities going forward
140.While we readily accept that decisions on future inquiries will ultimately be a decision for the BEIS Committee itself, we thought it might be helpful to highlight some areas we consider to be important.
- First and foremost on our agenda was our work to assess the implications of leaving the EU on energy and climate change policy. We have produced an overview in this report of our preliminary thinking on this subject, based solely on the written evidence we received. Many of the issues we raised warrant further, more detailed analysis.
- Also high on our agenda was the need to look in more detail at arrangements for securing electricity supply. We considered this to be particularly urgent in the light of planned plant closures, delays to new nuclear, sudden reductions in renewable energy support, and the failure of the Capacity Market to incentivise new gas-fired power stations.
- We have already referred in this report to the urgency to press the Government on the timeline for developing its Emissions Reduction Plan to meet the fourth and fifth carbon budgets. Once published it would be helpful to assess the extent to which the plan provides the much needed certainty required on the UK’s direction and the domestic policy framework.
- An essential area of ongoing scrutiny is the impact of energy policy on consumer bills, and in particular the extent to which the retail market is operating in a competitive way that encourages consumer engagement. This subject was thoroughly scrutinised in the last Parliament by our predecessors but has received less attention since the 2015 election as much hope had been placed on the remedies expected to emerge from the CMA’s Energy Market Investigation. The implementation of changes arising from this inquiry will need to be closely followed.
- We saw compelling evidence on the advantages of electrifying the road transport system. There is no doubt that the technology is developing quickly and its appeal to consumers is clear. There are public health benefits as well as industrial and economic ones. Government should continue to encourage the uptake of electric vehicles and our successor Committee may want to monitor progress.
- A final area of interest was community energy. This is the term commonly used to refer to projects or programmes designed to manage energy, generate energy, purchase energy, and reduce energy use amongst a group of people within a particular location or with a particular interest. We consider Government’s approach to supporting community energy groups and projects to be under-scrutinised.
141.In our report, Our priorities for Parliament 2015–20, we produced a table of issues and highlighted the action we had taken on each one in 2015. We have updated this table as a record of our activities and it is provided in Annex 2. The BEIS Committee will no doubt wish to develop its own view on the priority areas for scrutiny in the months and years ahead. The fresh perspective of a new Committee will be welcome and we encourage a diverse range of stakeholders to engage positively with our successors to help shape their thinking.
331 Energy and Climate Change Committee, Second report of session 2015–16, Future of carbon capture and storage in the UK, HC 692
332 Energy and Climate Change Committee, Second report of session 2015–16, Future of carbon capture and storage in the UK, HC 692
333 Energy and Climate Change Committee, Second report of session 2015–16, Future of carbon capture and storage in the UK, HC 692
334 Energy and Climate Change Committee, First Special Report of Session 2016–17, The future of carbon capture and storage in the UK: Government Response to the Committee’s Second Report of Session 2015–16, HC 497
335 Lowest Cost Decarbonisation for the UK: The Critical Role of CCS, Report to the Secretary of State for Business, Energy and Industrial Strategy from the Parliamentary Advisory Group on Carbon Capture and Storage, September 2016
336 Energy and Climate Change Committee, Third report of session 2015–16, Investor confidence in the UK energy sector, HC 542
337 Contracts-for-Difference (CfDs): Contracts designed to support low-carbon electricity generators by effectively fixing the price they receive per unit of electricity. A ‘strike price’ is set for generators who are paid the difference between this and the wholesale price of electricity (where the latter is lower) for every unit generated. If the strike price is lower than the wholesale price, the generator has to repay the difference.
339 Levy Control Framework: A system to control and cap levy-funded spending currently covering Contracts for Difference, Feed-in Tariffs and the Renewables Obligation.
340 Energy and Climate Change Committee, Fifth Report of Session 2015–16, Setting the fifth carbon budget, HC 659
341 Cabinet Office, Giving evidence to select committees: guidance for civil servants, October 2014, para 68
342 Q 294 [Angus Brendan MacNeil to Andrea Leadsom] Oral evidence on Investor confidence in the UK energy sector, 29 June 2016, HC 478
343 Energy and Climate Change Committee, Fourth Report of Session 2015–16, Home energy efficiency and demand reduction, HC 552
344 Energy and Climate Change Committee, Third Special Report of Session 2016–17, Home energy efficiency and demand reduction: Government Response to the Committee’s Fourth Report of Session 2015–16, HC 542
345 DECC Policy Paper, Draft Legislation on Energy, 21 January 2016
346 Energy and Climate Change Committee, Sixth Report of Session 2015–16, Pre-legislative scrutiny of the Government’s draft legislation on energy, HC 776
347 Oral evidence on Competition and Markets Authority’s Energy Market Investigation, 5 July 2016, HC 315
348 Letter, dated 19 July 2016, to Rt Hon Greg Clark MP regarding the CMA energy market investigation
349 Energy and Climate Change Committee, First Report of Session 2016–17, Low carbon network infrastructure, HC 267
350 Energy and Climate Change Committee, Low carbon network infrastructure: Government Response to the Committee’s First Report of Session 2016–17, Fifth Special Report of Session 2016–17, HC 738
351 Energy and Climate Change Committee, First Report of Session 2016–17, Low carbon network infrastructure, HC 267
352 Energy and Climate Change Committee, Low carbon network infrastructure: Government Response to the Committee’s First Report of Session 2016–17, Fifth Special Report of Session 2016–17, HC 738
353 Energy and Climate Change Committee, Second Report of Session 2016–17, 2020 renewable heat and transport targets, HC 173
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14 October 2016